Welcome back to the second part of our investment lexicon series. Congratulations on gaining a solid understanding of what the market is, how the stock market works, and different methods of tracking its performance. Now, let’s delve into some key tools to keep in mind when investing in the stock market.
To begin with, diversification is a risk management strategy that aims to ensure your portfolio isn’t over- or underexposed in a certain area. This can be done by diversifying across asset classes, within assets, and also geographically. This ensures that your portfolio assets balance each other out by maximizing profit and minimizing risk, ultimately maintaining that crucial balance.
Asset allocation, on the other hand, evaluates how your portfolio is created and the specific securities you are investing in. It’s an investment strategy that builds your portfolio by weighing an adequate amount of risk for your goals, working in harmony with diversification.
Dollar-Cost Averaging (DCA) is a great long-term strategy that helps investors build wealth over time by dividing the total investment amount into smaller, periodic purchases. This allows the investor to avoid market timing, harness volatility, and hopefully see a better return.
When it comes to high-level investment strategies to keep in mind, we have two that are ideal for new investors. Active vs Passive Investing offers two completely different approaches to money management, with passive investing proven to match or outperform its active counterpart. Another strategy is Growth vs Value, where investors lean toward one approach or another depending on their individual needs.
As always, it’s crucial to find an investing strategy that supports your unique goals, adjusting it as necessary over time. And remember, it’s important to update your plan as you move through significant life stages. This is where working with a financial planner could be incredibly helpful. Make sure to stay tuned for our next series installment, where we’ll explore the different types of investments in your portfolio! Excited to learn more? Reach out – we’d love to talk to you.
